We’re nearing the end of earnings season and as always, it’s been an interesting one. What were your main takeaways? 

MeL: Google and Facebook were two of the companies that stood out. Google reported strong growth in its cloud segment, underscoring the pivotal role of cloud services in today’s digital world.

Their advertising segments also performed well, alleviating some concerns over Google’s search dominance in the face of generative AI. Facebook witnessed a stock surge after announcing Q2 results that exceeded expectations, suggesting that the company’s strategic shifts and cost-cutting measures are bearing fruit.

Amazon was another company that beat expectations by quite a margin, in part due to the stabilisation of its cloud computing service.

Amazon Web Services has been decelerating somewhat in recent quarters, but the latest results indicate the situation has now stabilised.

On the other hand, Microsoft saw its share price dip after announcing more subdued earnings, attributed to a slowdown in cloud computing and reduced demand for personal computing products.

It feels like the market was expecting Microsoft to offer something more in terms of AI, especially considering that it was one of the first companies to benefit vestment in ChatGPT.

How much of a driver will AI be for the data centre business?

MeL: In the short term, cloud computing will remain integral to AI, given that most AI services are cloud-based. Requests made to the AI are processed in the cloud and not the device making the request, so for the time being, it is essential. 

As AI evolves, there’ll be a shift towards on-device AI, enabling devices to function offline and enhancing both efficiency and responsiveness. It will free AI of the need for an internet connection, in the same way laptops and later smartphone freed us of the PC terminal.

Qualcomm recently tested its first on-device AI chips and offered a very positive long-term outlook for on-device AI in its recent earnings call. The company foresees demand for on-device inference to be high enough to require an upgrade cycle for handsets in between 5G and 6G.

AI will also permeate its way into sectors we would not have associated it with up until now. For instance, through collaborations in the automotive sector, Nvidia is working on solutions to make cars more intelligent, with features like predictive maintenance, personalised in-car experiences and advanced safety features to name a few.

Similarly, in the pharmaceutical sector, Nvidia recently announced an investment of $50 million in Recursion Pharmaceuticals to help accelerate training of Recursion’s AI models for drug discovery.

So, it looks like AI will continue to drive the tech sector and financial markets overall…

MeL: To some extent, though there’s a limit to how much we can continue to raise expectations, especially in the short term.  The world has been given a taste of what AI can do and it has already revolutionised some aspects of our lives, so the hype is understandable.

I think expectations have shot up way too much and moved from optimistic to unrealistic

At the same time, I think expectations have shot up way too much and moved from optimistic to unrealistic, especially when you consider that the development of these new products and technologies won’t happen overnight. 

So, while market indicators suggest optimism, I would advise caution both because I think investor expectations on AI might soon start to reach their peak but also because of what I feel is a disconnect between financial markets and the broader economic landscape.

I find it hard to believe that we won’t see any impacts from the sudden reversal in monetary policy we’ve seen over the last year or so.

Where there any other notable results from this earnings season?

MeL: The main takeaway from the results is that the anticipated recovery in the PC market appears to be here. Intel registered an unexpected profit and a promising outlook for Q3, driven by an uptick in PC dales, sentiment we saw mirrored across the market.

AMD’s results saw it register a dip in PC sales while also signalling, somewhat less optimistically, that it expected a rebound by the end of the year.

Similarly, Samsung hinted at an impending recovery despite its poorest results since 2009. The hope is that this momentum complements the buoyancy seen in the AI and Data Centre segments, which have been market catalysts this year.

Overall, I would say that the expectation of a potential earnings recession, coupled with an economic recession, have not materialised. 

This interview is issued by Jesmond Mizzi Financial Advisors Limited and does not intend to give investment advice and the contents therein should not be construed as such. The company is licensed to conduct investment services by the MFSA, under the Investment Services Act. Investors should remember that past performance is no guide to future performance and that the value of investments may go down as well as up. For more information contact Jesmond Mizzi Financial Advisors Limited of 67, Level 3, South Street, Valletta, on 2122 4410, or e-mail info@jesmondmizzi.com.